“Whereas” clauses carry declarative and commercial value, as well as legal implications on the contracting parties in the event of a dispute down the road. It is therefore important to give them due consideration in advance in order to avoid and avoid unnecessary obstacles later on.
Whereas…
Every contract begins with whereas clauses, those introductory statements which mean “considering that” or “that being the case” and setting the stage for the body of the agreement between the contracting parties. These clauses are meant to give some background for the contractual engagement.
It has been my experience that those often unappealing statements can be much more important than first perceived, for their presence or absence can impact legal and a commercial interpretation of the engagement.
Declarative value
The whereas clauses do not describe the agreements; they explain what lead the parties to the point of contracting, provide background information regarding their state of mind, and can offer insights on the intention of the parties.
Being declarative in nature, most contracting parties will not pay much attention to the whereas clauses and instead focus their attention on the operative provisions that follow.
So the question arises: are the whereas clauses necessary? Should we pay more attention to these clauses?
In dispute
In the event a dispute arises between contracting parties under circumstances not specifically addressed in the body of the contract, the rules of interpretation of the Israeli legal system send us in search of the intention of the parties in order to fill the void.
In this respect, the whereas clauses are one of the places a judge or arbitrator may look for to get a better understanding of the true relationship of the parties and their intentions in this contractual engagement.
Practically, a seasoned attorney should know which statements should be included and which must not for avoiding potential problems down the road; and use these clauses to serve the purpose of describing the intent of the parties.
Commercial value
In addition to the legal implications the whereas clauses may have in case of dispute, contracting parties must also consider how the contract is perceived by third parties, for example investors examining the founders’ agreement while performing due diligence on an early stage company.
While it may at first seem like a good idea to elaborate, tell a long tale and expose as many facades as possible in the relationship between the parties, one must act wisely and avoid including statements that could later be regretted.
For example, you may be able to convince your investors that your former partner and departing founder was actually not all that important to the company – but you are going to have a tough time doing that if the agreement describes two equal partners that are mutually important for the success of the venture, bringing with them important assets to the venture.
On a practical level, some statements may be true, and the parties could like seeing them in the document – however it is sometimes beneficial to be brief and concise.
To answer the question
Yes, the whereas clauses are important, and the point I am trying to get across in this post is this:
don’t overlook the whereas clauses – make sure they include enough information to communicate the big picture behind the contract, but at the same time make sure not to offer statements that may seem appropriate at the present time but could end up being harmful down the road.
Einat Katzenell is the Founding Partner of Katzenell Dimant and provides strategic and practical legal advice to hi-tech, life sciences and biotechnology entrepreneurs, investors, early stage and mature companies, academic institutions and business initiatives.
einat@kdlaw.co.il +972.9.9500555 LinkedIn
DISCLAIMER: Blog posts are not designed to provide legal advice or create a lawyer-client relationship. You should not take action based on this content.